Interest on Interest-on-Interest Claim Despite Court Deposit of MSME Arbitral Award
Judgment dated 6.8.2026 of the High Court of Gujarat in R/Special Civil Application No.427 of 2026 of M/s Mahakali Foods Pvt Ltd Vs. Gujarat State Civil Supplies Corporation Ltd & Others
he present proceedings are arising of an MSME award dated 11.09.2014, whereunder an amount of Rs. 5,21,47,402/- ( Rs. 2,22,61,940/- + Rs. 2,98,85,462/-) has been directed to be paid to the appellant herein namely M/s. Mahakali Foods Pvt. Ltd. (award holder) by the original petitioner, namely Gujarat State Civil Supplies Corporation Ltd. (GSCSCL) (award- debtor). A perusal of the operative portion of the award at Page No. ‘311’ of the paper book indicates that in case of non payment of the awarded amount within the time period of 30 days prescribed therein, compound interest with monthly rests as per Section 16 of the Micro, Small and Medium Enterprises Development Act, 2016 (in short’ the MSMED Act, 2006) is payable. The award records that it would be open for the aggrieved party to file application under Section 19 in accordance with the provisions of Section 19 of the Act, 2006.
GSCSCL filed appeal and deposited 75% of the award amount. The claimant was allowed to withdraw 50% of the deposited amount towards principal. However, vide order dated 21.10.2015, the District Court observed that the question of remaining amount would be decided at the time of hearing of section 34 petition.
On 20.8.2018, appeal was dismissed. Section 37 appeal was also dismissed on 13.11.2019. However, in SLP by the order dated 27.10.2020 the Supreme Court directed that 25% balance amount may be deposited and allowed to be withdrawn on furnishing bank guarantee.
On 27.11.2020, the amount of Rs.1,44,89,199/- was deposited.
On 31.10.2022, the SLP was dismissed.
Thereafter, the claimant started recovery proceedings of the arbitral award. However, the petitioner stated that nothing is payable. The Collector had sought guidance of MSME Council for closure.
By the letter dated 13.4.2023, the Council directed the Collector to recover Rs.34,89,19,321/-
Having held that the MSME Council became functus officio with the termination of the arbitral proceedings after declaration of the award dated 11.09.2014 and there is no adjudicatory powers with the MSME Council to adjudicate upon the post-award dispute raised herein by the award holder with respect to the post-award interest on the awarded amount deposited before the District Court in the appeal under Section 17 of the MSMED Act, 2006, we proceed to deal with the second issue namely, “whether the award holder can claim recurring interest over the amount deposited by the award holder before the District Court in the proceedings under Section 19 of the MSMED Act, 2006, where 75% of the awarded amount has been deposited with up to date compound interest under the MSME award dated 11.09.2014 as per Section 16 of the MSMED Act, 2006”.
However, the fact remains that the 75% of the deposits made in the application under Section 19 of the MSMED Act, 2006 were to the satisfaction of the Court, and 75% of the total awarded amount with up-to-date interest was deposited by the award debtor while challenging the validity/correctness of the award. In this scenario, the circumstances of failure of the buyer (award-debtor) to make payment to the supplier (award-holder) as contemplated in Section 16 of the MSMED Act, 2006, to further incur the compound interest as per the said provision, would not arise. In other words, there is no occasion of failure on the part of the buyer (award- to make payment to the supplier, namely the award holder, so as to incur further liability to pay compound interest as per Section 16 of the MSMED Act, 2006 beyond the date of deposits in the Court. The MSME award has levied Section 16 interest in favour of the award-holder from the date when the amount was due towards the buyer (award-debtor) till the date of actual payment. However, once the buyer or the award-debtor had deposited 75% of the total awarded amount with up-to-date interest, the “interest clock” on the said deposited amount would stop running.
